Competitive balance in baseballThe rich get richer as a home-run champion moves to New York

THE PAST decade has been a resounding success for Major League Baseball’s (MLB) efforts to promote competitive balance. Back in 2000, when the New York Yankees, the sport’s richest team, were en route to winning their fourth championship in five years, MLB hired a “blue-ribbon panel” to propose reforms that would help clubs in smaller markets to contend for titles. Since then, the sport has added or fine-tuned a luxury tax on high payrolls, a sharing scheme for teams’ locally generated revenues, limits on payments to young players when they first enter the MLB system and an online streaming-video service whose profits are split equally among all clubs. Largely as a result, the Yankees failed to advance to even the first round of the playoffs for four consecutive years from 2013-16, whereas long-moribund teams like the Kansas City Royals have surged to success. Both of the past two World Series winners, the Houston Astros and Chicago Cubs, had to endure three years of futility before acquiring the foundations of their championship rosters. Conversely, a once-mighty club like the San Francisco Giants, who claimed the title in 2010, 2012 and 2014, slumped to the worst record in baseball last season.

A recent series of off-season trades, however, suggests that the old gap between have- and have-not franchises may be starting to widen once again. The biggest deal by far, completed on December 9th, sent Giancarlo Stanton, the sport’s foremost power hitter and the winner of the National League’s Most Valuable Player award in 2017, from the Miami Marlins to the Yankees. In exchange, the Marlins received Starlin Castro, a competent second baseman; a pair of minor leaguers; and, most importantly, a reprieve around 90% of the $295m in guaranteed salary Mr Stanton, whose contract is the richest in American team sports, is owed during the next decade. Despite playing half of his games in a pitcher-friendly ballpark, where batted balls that would become home runs in most other stadiums frequently fall short of the fence, Mr Stanton slugged 59 home runs last season—the highest total by a player who has not faced accusations of doping since 1961. After moving to homer-happy Yankee Stadium, Mr Stanton should at least mount a challenge to the current American League (AL) single-season record of 61 during the coming years.

The Marlins’ fire sale, however, did not stop there. Miami has also sent Dee Gordon, a speedy second baseman owed $37m during the next three seasons, to the Seattle Mariners, and Marcell Ozuna, their second-best hitter, to the St Louis Cardinals. In both cases, they received minor-league prospects in exchange. They have already trimmed their payroll from $115m at the start of last season, their largest figure ever, to around $80m for next year; further trades could bring that down to the $50m range. That will surely make them one of MLB’s weakest clubs in 2018.

A handful of other transactions have also made bad teams in smaller cities worse, and good teams in bigger cities better. Most notably, on December 8th the Los Angeles Angels, who already employ baseball’s best player in Mike Trout, won the sweepstakes for Shohei Ohtani, a Japanese import who will seek to become the first MLB player to both pitch and hit regularly in nearly a century. Less than a week later, the Angels picked up Ian Kinsler, a strong second baseman, from the Detroit Tigers, who tied with San Francisco last year for baseball’s worst record. Similarly, on December 17th the Angels’ crosstown rivals, the Los Angeles Dodgers, acquired Matt Kemp, an outfielder who previously played for them from 2016-14, from the woeful Atlanta Braves. Although the players the Dodgers gave up will earn the same amount of money as Mr Kemp, they will do so over one year rather than Mr Kemp’s two—ensuring that the free-spending Dodgers will remain below the payroll threshold that triggers a tax payment in 2018.

On one hand, this flurry of trades can simply be seen as churn reflecting rational behaviour in a healthy, competitive market. There are essentially two ways to make money in MLB: either you contend for a championship, packing your stadium with fans and juicing merchandise sales, or you slash payroll, lowering both revenues and costs and relying on shared payments from MLB to stay afloat. The economic no-man’s land lies in the middle, where teams pay some high salaries but do not win enough games to enjoy the windfall from qualifying for the postseason. Moreover, the top picks in the amateur draft, in which MLB teams choose young players from high schools and colleges, are reserved for the teams with the worst won-lost records the previous season. As a result, the fastest way for a decent team to become a contender is often to “tank”, and force fans to suffer through a few years of “rebuilding” before starting to buy more expensive players once again. Both the Cubs and the Astros took this path to their titles in 2016 and 2017.

No one has mastered this “success cycle” better than the Marlins. In both 1997 and 2003 the team paid up for a few high-priced free agents, won the World Series, and then sold off its best players immediately following its championships, rather than risk being stuck with an expensive, ageing roster. When the club signed Mr Stanton to his record $325m, 13-year deal in 2014, it appeared poised to build for another run at a title. In addition to its star slugger, it employed José Fernández, the best young pitcher in the sport, and two other fast-developing hitters in Mr Ozuna and Christian Yelich.

However, the team suffered a devastating blow when Mr Fernández died in a boating accident in 2016 at the age of 25. Moreover, some of the players it did sign to costly contracts have disappointed or succumbed to injury. Despite splurging on its highest payroll ever and enjoying a season for the ages from Mr Stanton, the club still lost more games than it won in 2017. Even if the team were to spend millions more on the free-agent market—a highly unrealistic prospect, given that the Marlins have the worst television-revenue deal in MLB—its chances of making the playoffs appeared remote. Moreover, its pipeline of minor-league talent was among the weakest in MLB, leaving little room for hope that its youngsters would soon develop into stars.

The optics of the deal for Mr Stanton were unquestionably grim. Not only did the trade conjure up the ghosts of Miami’s fire sales past, but the Marlins were just sold this year to a new ownership group that includes Derek Jeter, a former star for the Yankees. Fans could easily be forgiven for accusing Mr Jeter of ransacking his new acquisition in order to aid the club that truly retains his loyalty. In reality, though, any rational general manager would have come to the same conclusion: the Marlins had no realistic path to contention with their current roster and revenue base, and needed to start anew.

Similar logic explains why the Yankees wound up with Mr Stanton. Following four good-not-great years, New York returned to baseball’s elite in 2017. Although the club’s management may have expected a longer rebuilding process, three of its young players—Luis Severino, a starting pitcher; Gary Sánchez, a catcher; and Aaron Judge, an outfielder—blossomed into stars last season. In particular, Mr Judge, who stands six feet, seven inches (2.01 metres) tall, transformed into a credible rival to Mr Stanton as the most formidable slugger in baseball: he clubbed 52 home runs, setting a record for players in their first season.

New York won 91 of its 162 regular-season games last year, the fourth-best record in the AL. The Yankees proved their mettle by ousting the Cleveland Indians, whose total of 102 regular-season wins was the AL’s best, in the first round of the playoffs, and taking the 101-win Astros to a decisive seventh game in the second round before falling to the eventual champions. Most fans saw New York as an overachieving club, and its victory over Cleveland as a huge upset. However, whereas the Yankees’ actual won-lost record was merely good, its run differential—a much better predictor of future success—suggested they had the true talent level of an elite 100-win team. Mr Severino, Mr Sánchez and Mr Judge are all 25 or younger, and will remain under the Yankees’ control until 2022.

New York is clearly at a point in the success cycle where it should buy whatever talent is available virtually regardless of the price, and Mr Stanton was by far the best player on the market. For next year, adding him will give the 2018 Yankees a realistic chance to become the first team with two 50-home-run hitters since New York’s 1961 club. Bookmakers now put the Yankees roughly even with the two finalists from 2017 as the co-favourites to win the World Series next year. And in the long run, Mr Stanton is only 28, and has the physique and athleticism to retain his value well into his 30s. Even though Mr Stanton will consume 14% of the Yankees’ payroll next season, he stands a good chance of being a profitable investment for the club in the long run as long as overall MLB revenues continue to climb.

But the broader question raised by the Marlins’ sell-off and the Yankees’ return to their historical free-spending ways is whether the two clubs’ home cities have anything to do with their trajectories. If New York is ascending the success cycle and Miami is descending it simply because a few Yankees prospects vastly exceeded expectations while the Marlins suffered through a series of happenstance misfortunes, then the MLB commissioner��s office has nothing to worry about. In contrast, if the Yankees are buying and the Marlins are selling because New York is a big market and Miami is a small one, that might mean that MLB’s efforts to ensure that financial might does not make right are breaking down.

On the surface, there would seem to be ample cause for concern. The three biggest prizes of this year’s off-season so far—Mr Stanton, Mr Ohtani and Mr Kinsler—have all wound up in New York or Los Angeles, America’s two largest cities. And five of the six teams that won their divisions last year were based in high-revenue markets.

However, unlike the Yankees’ previous efforts to buy championships, their dealings this year stem more from savvy management and good fortune than from brute financial force. MLB’s luxury tax is a stiff disincentive for teams to spend with abandon: clubs that surpass a payroll of $197m must pay a levy of 20%, 30% or 50% on the excess, depending on whether it is their first, second or third consecutive year breaching the threshold. New York was just $14m over last year’s cap, yielding a modest tax bill. And the Dodgers’ acquisition of Mr Kemp may have been an effort to game the luxury-tax rules, but still shows that baseball’s biggest-budget team cannot afford to disregard the restraints placed on it.

The reason the Yankees could take on Mr Stanton’s salary without sending their tax bill into the stratosphere was their remarkable performance in player development. Mr Severino and Mr Sánchez were signed in the Dominican Republic for $225,000 and $3m, while Mr Judge was chosen at the very end of the first round of the amateur draft. All three now earn near the league minimum, thanks to a rookie salary scale intended to help poorer teams compete; if they were free agents, they would all make at least $20m a year. The draft and luxury tax are intended to yield equality of opportunity, not equality of outcome: clubs should clearly be rewarded for successfully identifying and cultivating young talent, even if they also have the fortune to play in a big market. Had Mr Fernández not suffered his tragic accident, and had the Marlins chosen Mr Judge in the 2013 draft (they passed on him with the sixth pick, and he was not taken until the 32nd), Miami would probably have held onto Mr Stanton and contended for the playoffs next year. Similarly, Mr Ohtani probably chose to join the Angels in part for the privilege of playing alongside Mr Trout, who was picked 25th in 2009. Plenty of small-market teams might have been able to make a better pitch to Mr Ohtani if only they had had the wisdom to recognise the potential in Mr Trout when he was 17 years old.

Nonetheless, MLB will need to remain vigilant if it hopes to continue blocking the market’s natural tendency to route the most valuable workers to the employers who can best afford to pay them. This year’s free-agent class includes numerous stars; if the Yankees or either Los Angeles team decides to sign a bevy of them, as New York did to acquire the core of its 2009 championship team, the league might well conclude that its collective-bargaining agreement needs revising. The spectacle of Mr Judge and Mr Stanton swatting balls into the stands is sure to delight New Yorkers for years to come. But if the system is truly working, it should only be a few years before a young, scrappy Marlins squad rises from the ashes and challenges what will eventually be an overpaid and ageing Yankees roster for a title.

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